Description of the event

The company disclosed its three-quarter report. The company's revenue for the first three quarters of 2024 was 68.15 billion yuan, down 31.27% year on year, and net profit was 5.198 billion yuan, down 40.05% year on year. Net profit attributable to shareholders of listed companies in the third quarter was 1.873 billion yuan, a year-on-year decrease of 15.13%.

Incident comments

Industry-level demand remains a core constraint. The overall macroeconomic environment is under pressure, causing the investment side to remain weak. The area of new housing construction in the first three quarters of 2024 decreased by 22.2% year on year; infrastructure investment (excluding electricity, heat, gas and water production and supply) increased by 4.1% year on year, down from the 5.9% growth level for the whole of last year. In the first three quarters of 2024, the country's cement production was 1.327 billion tons, down 10.7% year on year; among them, cement production growth rates in a single month of 7/8/9 were -12%, -12%, and -10%, respectively. Based on this, we expect the company's cement sales to decline by 5% to 10% year-on-year in the 24Q3 single quarter, and profitability will remain basically flat month-on-month.

We expect the 24Q4 price increase to be implemented flexibly. From the end of September to the beginning of October, the Yangtze River Delta market rose by 100 yuan/ton. The core reason for this price increase is also a reflection of the strengthened cooperative attitude of enterprises in the context of bottom profits. Although the Yangtze River Delta price increases have fallen short of expectations 4 times this year (April, May, July, and September), the market is uncertain about the implementation of this price increase. The difference between this price increase and previous price increases is: 1) Demand occurs during the peak season. For cement companies, the fourth quarter is the biggest peak season of the year, and demand will generally improve 5%-10% month-on-month; profit accounts for a higher share of the whole year, and the momentum for companies to raise prices is stronger. 2) Supply restrictions are more severe. Looking at the past, most of the misspikes in the Southern Market occurred during the off-season. This time, the production line was shut down for 12 days from September 27 to October 31, which was the peak of the peak season. Stronger efforts exceeded expectations, and leading cooperation was even stronger; at the same time, the Hubei region is also expected to stop production to cooperate in October. 3) A single price increase is even greater. Judging from the intensity of price increases alone, it is rare for the Yangtze River Delta to raise prices by 100 yuan/ton at once (only in a few extreme years). 4) Policy expectations are more clear.

Countercyclical fiscal policy adjustments have increased, which is beneficial to the segmentation of building materials such as cement. The Ministry of Finance meeting clearly put forward new requirements for debt conversion. We believe that one is that it can reduce interest expenses, and the other is to open up medium term leverage space, which is conducive to a month-on-month improvement in infrastructure demand. Continuing the previous framework, the Yangtze River Delta market is an open market, and there are many factors to consider and pressure to collaborate, so it is also very difficult. If the price can be implemented better, it will definitely require more intense collaboration. Considering changes in the current profit situation and market environment of regional enterprises, we believe that this price increase is likely to be realized. According to current tracking, the implementation situation in different regions varies, and basically ranges from 50-100 yuan. It is expected to bring a certain boost to the company's 24Q4 single-quarter results.

In addition, it is also necessary to pay close attention to important supply-side changes in the industry: 1) Overproduction management has led to the withdrawal of some small production capacity and recompression of supply. In the past, some enterprises achieved equipment upgrades through technical reform and non-compliant production capacity replacement, which in turn caused some damage to the entire industry's erroneous peak production. Starting with 2024Q3, the industry standardized the management of overproduction to a certain extent. Enterprises needed to be restrained through supplementary indicators, and some production lines were cleared to a certain extent. 2) Carbon trading has increased costs for small and medium-sized enterprises, and agreement consensus has been strengthened. As far as cement companies are concerned, it is possible that some small enterprises may face increased costs due to outsourced carbon targets. In the current context of high profit and loss pressure, it is expected to force them to participate more actively in market price maintenance.

The company's 2024-2025 performance is expected to be 8.3 and 8.5 billion, corresponding PE is 17.1 and 16.7 times, and the purchase rating.

Risk warning

1. Demand recovery falls short of expectations;

2. The progress of epitaxial processes such as aggregates is slow.